Aussie bank deposits to be government-guaranteed by John Dixon in Melbourne Tuesday June 3 2008 - 03:12pm Australian treasurer Wayne Swan has announced a series of reforms in response to the global financial markets crisis, with the centerpiece being a guarantee to immediately pay account holders up to $A20,000 if their financial institution fails.
The guarantee applies to deposit-taking institutions – banks (including foreign banks operating in Australia), credit unions, building societies and general insurers. It does not cover superannuation funds, life insurers and managed funds, because it is considered that these are chasing higher returns and therefore have a different element of risk.
The Financial Claims Scheme will allow see the government pay each depositor their funds within a week, up to a cap of $A20,000 each, with any balance to be available on liquidation or takeover. Mr Swan says this will allow 80 to 90 per cent of depositors to get all their money back straight away, but acknowledges that the remaining 10 to 20 per cent of investors account for over half of the funds on deposit in the banking system.
The inclusion of general insurers in the FCS follows a recommendation made by the HIH Royal Commission in2003; considerable hardship was reported by 15,000 small policy holders who could not get more than $A500 million in claims paid. But in the case of insurers, Mr Swan has emphasized that it will not apply to all claimants. “The focus will be on those least able to bear the losses, with eligibility limited to individuals, small businesses and not-for-profit entities,” he said.
In the event of FCS payments being triggered, the government will recover the amounts it pays through APRA taking the place of the depositors as priority creditors in the liquidation queue, and if necessary through subsequent levy on the remaining financial institutions.
Mr Sawn also foreshadowed new legislation, to be introduced later this year, to allow the Australian Prudential Regulation Authority greater power to interfere in the affairs of banks facing a crisis.
And Mr Swan re-affirmed the Labor government’s commitment to maintaining the long-standing “four pillars” policy, which prevents the nations four largest banks from merging with or taking over each other. This is designed to protect competition for the consumer, but is increasingly being criticized as inappropriate and negative interference in the market.
The four pillars policy will also cement the position of the merger between Westpac and Australia’s fifth-largest bank, St George, which is currently under negotiation and seeking regulatory approval. The merged entity, assuming that approval is given, will take Westpac from the nation’s third largest bank (ahead of ANZ) to the largest, surpassing the Commonwealth Bank of Australia and the National Bank of Australia.
